Weaker demand hits PPC profits

JOHANNESBURG - Cement producer PPC’s share price fell more than 6 percent on the JSE yesterday after the group reported a 9 percent decline in earnings before interest, tax, depreciation and amortisation (Ebitda) to R1.88 billion for the year to end March, as weaker demand curtailed its profits.

PPC said demand for cement in its major operation areas of South Africa and Botswana fell during the period, despite a marginal rise in Zimbabwe and Rwanda.

The group said the decline was exacerbated by non-recurring costs and inclusion of the DRC for the first time. Last year, PPC recorded a R2.01bn hike in earnings. PPC shares closed 1.91 percent lower at R7.20 on the JSE yesterday, down from Friday’s closing price of R7.34 a share.

The group said the DRC operation contributed an Ebitda loss of R105 million, as compared to an Ebitda loss of R39m last year. But it said the Ebitda would have risen 2 percent, but for once-off costs and exchange rates.

“In addition, excluding the impact of the DRC, like-for-like Ebitda would have risen 4 percent,” the group said. PPC said it expected to consolidate its Foh-Four strategy to turn the situation around in the future.

Chief executive Johan Claassen said the strategy helped to increase headline earnings by 172 percent during the period.

“The strategy involved getting back to basics and refocusing, which included optimising the financial, operational and human (Foh) capital of the group. Addressing these priorities has laid an important foundation that will enable the group to create long-term sustainable value for stakeholders in future,” Claassen said.

Headline earnings for the period increased to R231m, up from R85m while headline earnings per share increased by 114 percent to 15 cents a share, up from 7c compared to last year. The group said Zimbabwe and Rwanda grew revenue by 34 percent and 20 percent, respectively. It said the rest-of-Africa cement sales increased revenue by 30 percent to R2.76bn from R2.12bn, while total volumes rose more than 50 percent.

“Our performance has been resilient against the backdrop of challenging economic and political environments in markets in which we operate. While our rest-of-Africa operations – particularly in Zimbabwe and Rwanda – achieved good results, our materials division faced reduced demand and increased competition. “Our results have also been impacted by a number of significant abnormal items, like corporate action, impairment of DRC operations and restructuring costs,” Claassen said.

It said revenue increased by 7 percent to R10.27bn, up from R9.64bn, impacted by the strengthening of average rand exchange rates against most foreign currencies. On a constant currency basis, revenue grew by 14 percent, accounting for the 7 percent strengthening in the rand against the dollar to an average rate for the year of R13.06, compared to R14.08 last year. Excluding DRC sales, which were included for the first time for five months, like-for-like growth was 5 percent. The group’s total cement volumes increased 6 percent to 5.9 million tons.

In the group’s southern Africa operations, the cement revenue was marginally down, with realised average selling prices rising 2.5 percent, although volumes declined 2 to 3 percent. “We estimate that volume performance was better than the overall market, despite a particularly depressed first quarter in 2018, where all regions recorded a slowdown,” the group said.